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What Is Perfect Competition
What Is Perfect Competition
Consider a farmer’s market where each vendor sells the same type of jam.
There is little differentiation between each of their products, as they use
the same recipe, and they each sell them at an equal price. At the same
time, sellers are few and free to participate in the market without any
barrier. Buyers, in this case, would be fully knowledgeable of the product’s
recipe, and any other information relevant to the good.
Imperfect Competition
In economics, imperfect competition refers to a situation where the
characteristics of an economic market do not fulfil all the necessary
conditions of a perfectly competitive market. Imperfect competition causes
market inefficiencies, resulting in market failure. Imperfect competition
usually describes behaviour of suppliers in a market, such that the level of
competition between sellers is below the level of competition in perfectly
competitive market conditions.
Market firms are NOT price takers and hence have control over the
pricing of their goods and services;
The market contains ONE seller or none;
There are barriers to market entry and exit;
There is information asymmetry between buyers and sellers;
The market's goods and services are heterogeneous or differentiated.